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| PayPal Analysts Downgrade Estimates Due to Poor Guidance, Leading to Stock Decline. |
The stock of the payments-technology company took a sharp downturn of 9.1% to $57.44 on Thursday. This drop followed the company's announcement of better-than-expected fourth-quarter earnings. However, it also disclosed its expectation to post adjusted earnings in 2024, which are roughly in line with the profit of $5.10 recorded in 2023. Analysts, on the other hand, had been anticipating 2024 earnings of $5.51 a share, according to FactSet.
Leading up to this session, PayPal's stock had seen a decline of 19% over the past 12 months, contrasting with the S&P 500's gain of 22%.
The earnings report came shortly after the company's announcement last week regarding the layoff of 9% of its workforce to streamline costs. Despite offering payment services to both businesses and consumers, PayPal faces fierce competition from tech giants like Apple and Alphabet's Google unit, both of which have their own payment platforms.
Analysts at J.P. Morgan, led by Tien-tsin Huang, adjusted their price target on PayPal to $70 from $75, maintaining an Overweight rating on the shares. They now foresee a 2024 transaction growth of just 0.5%, down from their previous estimate of 2.8%.
“Management set a low bar,” they noted in a memo. “We expect pressure on the stock as estimates come down, but appreciate that management is clearing the year for upside as strategic priorities are enacted.”
Susquehanna analysts, led by James Friedman, revised their outlook, now expecting 2024 payments growth at 7.4% versus a previous estimate of 8.1%. They now anticipate adjusted earnings per share of $5.10, down from their previous call of $5.26. Susquehanna rates the stock at Neutral with a $65 price target.
On a more cautious note, Seaport analyst Jeff Cantwell expressed skepticism about the recently announced cost savings. “All this chaos is leaving us with a deeper appreciation for Tom Cruise, as PayPal increasingly looks to us like ‘Mission: Impossible’—but potentially, without the usual uplifting ending seen in those movies,” Cantwell wrote in a note. He holds a Neutral rating on the stock.
However, some analysts remain optimistic. Citi analysts stated, “We are taking advantage of the near-term volatility, but beyond that, the attractive valuation and persistent market-relevance of the PayPal flywheel keep us interested.” They rate PayPal stock at Buy with a $73 target price.
Wedbush is also positive about the shares, with a Buy rating and price target of $85. “While guidance isn’t ideal, we were encouraged by some of the actions already undertaken by management,” they said. Additionally, the Truist team, led by Andrew Jeffrey, also rates the shares at Buy, with a $70 price target. “We continue to believe that the company occupies an enviable e-commerce position,” they wrote.